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Thursday, October 11, 2007

Potential buyers of a 26 per cent stake in the government-owned Industrial Finance Corporation of India's (IFCI), the country's oldest financial institution, have raised concerns over the stability of their shareholding and board representation.

Interested parties are concerned about the possibility of 24 domestic banks and six financial institutions converting to equity Rs 1,480 crore worth of zero-coupon debentures to which they subscribed in 2002-03.

They are also worried at IFCI’s inability to accommodate more than three or four representatives from the prospective strategic investor on its 15-member board.

The IFCI board is expected to meet on Monday to discuss these issues.

Representatives of two potential buyers told once the debentures are converted, the strategic investor’s equity and, therefore, control will be reduced.

Sources at IFCI, however, said no time frame has been decided for the conversion. “The conversion has to follow certain legal procedures, including approval from the IFCI board. Nothing will be done which could impact strategic investors' interests,” they added.

On the issue of board representation, one suitor said: “Four seats on the board will not be in tune with the strategic investor’s equity holding of 26 per cent.”

In addition, the suitors said, the idea of buying 26 per cent was aimed at an eventual control of the company. Under the law, any acquisition of more than a 15 per cent stake requires a mandatory 20 per cent open offer for retail shareholders.

The successful bidder will eventually emerge as the largest shareholder in IFCI with nearly 46 per cent after an open offer.

“But the present structure of the IFCI board is averse to offering the majority of the board seats to the successful bidder. This will defeat the purpose of acquiring a majority stake,” he added.

The IFCI stock today closed at Rs 83.80 on the Bombay Stock Exchange, 3.29 per cent lower than yesterday's close. At this rate, the company's valuation of the company stands at Rs 5,352 crore. So an acquisition of 26 per cent is estimated at Rs 1,392 crore.

Sources close to IFCI said the effort to strike a balance between the interest of the bidder as well as other stakeholders is on. “We are hopeful of finding a solution,” they said.

Reliance Anil Dhirubhai Ambani Group on Thursday joined hands with One Laptop Per Child (OLPC) Foundation under which Reliance Communication (Rcom) would provide Internet connectivity, network and logistics to the OLPC's India initiative.

"Every child has the right to education. Reliance Communication is going to facilitate that right. This is not a laptop but an educational programme which will promote e-learning in the country," RADAG Chairman Anil Ambani's wife Tina Ambani told reporters here.

She invited state governments, NGOs, corporates and media to be a party to the programme, a pilot of which has already been started in a school in the tribal-dominated Khairat village, near Karjat in Maharashtra.

Under the programme, every student will be given a water-proof and almost unbreakable laptop, priced at $188 (landed price in India at $ 220) which would reduce the burden of the school bag and promote e-learning in the country reducing the digital divide in the society.

"India's economy is growing at a rapid pace. We need to to impart quality education to children. The education system has to be more student-friendly. It has to be fun-filled for them," Ambani said.

"OLPC programme would be application-oriented and not syllabus-oriented, as is the current practice," Ambani added.

There seems to be no stopping for the bull run which the market has been witnessing. Liquidity inflow is so strong that investors tend to ignore negative news and participate in bulls run. Indices opened on a fair note with less support from the mixed global cues. In the early sessions itself the investors booked profits heavily at the high levels which bought in the volatility. Indices swung both the sides between positive and negative zone with no clear direction. IT pivotals were major losers after unimpressive results and guidance by Infosys. Market struggled to keep up the gains till the mid sessions but steady buying in other sectors kept the momentum up as the markets ended near all time high. Nifty crossed 5500 mark for the first time.

Today the Bank of Japan (BoJ) reported that it would keep the interest rates unchanged at 0.5% which saw some rally in the Asian markets. Hang Seng for the first time crossed the 29000 mark. Capital goods, Metal, Auto and Realty stocks extended their gains and took Sensex to a new high. Mid cap and small cap indices outperformed the front liners. If the market continues to rally in the same way then 19k is on cards. Sensex can see some correction but if results are good mid caps may see rally.

Sensex ended the day up by 156 points at 18814.07. It was helped up by gains in ONGC (1066.45,+6 percent), Grasim (3800.3999,+4 percent), BHEL (2421.2,+4 percent), ACC (1260.3,+3 percent) and L & T (3486.6499,+3 percent). Restricting the gains were Satyam (447.95,-7 percent), Infosys (1976,-7 percent), TCS (1071.9,-5 percent), Wipro (488.1,-3 percent) and Cipla (191.05,-1 percent).Navneet, the education company has finally made a big entry into the e-education space which was dominated by Educomp. In a matter of 3 months the company has developed the animated software which covers the school syllabus for 1st ? 10th for the state of Gujarat. This it has already launched and has more than 50 schools to its credit. The pricing policy is penetrative at Rs 25000 for the full licence for the school per annum. This is set to change the paradigm set by Educomp. The low pricing really has the schools willing to buy and use the same in the audio Video room. Navneet believes that in an environment driven by marks, a product which helps the student score higher markets will be a winner. Near term the results for the September quarter should be good helped by the spillover effect from the previous quarter sales. We are really bullish on this one as it provides tuff competition to Educomp which has become too expensive but still is the market leader. Navneet has along way to go but we see that the company has the potential to deliver. We have our call on Navneet running which is now on the verge to deliver. The stock was almost 8% up.

IT People surged almost 10% after the board of the company approved the proposal to issue up to 75 lakh share warrants to either foreign investors or mutual funds or corporate bodies. The board also authorised the company to raise up to Rs 100 crore by issuing equity shares, warrants, FCCBs, or even borrow from banks/financial institutions. The company wanted to raise the money for funding the acquisition, also to set up new offices at various locations and for advertising itself as recruitment solutions provider. The company earlier in August 2007 had withdrawn its follow on public issue (FPO) to raise around Rs 45.25 crore due to lack of response from the retail investors. Recently the company acquired 100% stake in Marketplace Technologies (MT). MT is an established player in e-enabling the businesses in financial services sectors having similar products that to Financial Technologies. Its totally different area of operations for IT people as they provide recruitment solutions to the IT and ITES industry globally through a recruitment portal. But the potential of MT?s business is seen high with good growth and would one could see the upsides from this.

The demand for explosives is directly linked to the growth in mining and infrastructure sector. Demand for explosives is more in Coal mining, Infrastructure development and Metal mining. Mining industry is expected to grow in the core segments like coal, iron ore, and limestone. Coal mining remains the largest application for Explosives worldwide accounting for almost 70% of total explosive consumption. With the increasing allocation of coal fields to private sectors, the demand for explosives will continue to grow. Solar Explosive is the best bet in this sector as the industry has a huge entry barrier for the new player as it?s a licensed industry where you have to procure license for producing, transportation and can sell to sell only to those company having a license. Specialized knowledge on the kind of explosive and the right combination needed for kind of rocks gives Solar the extra edge. The company had recently announced that it had bagged orders from CIL and some are also in pipeline. The stock has rallied ahead of result; we will update more on results soon. Do read the note on the same for a better view.

Technically Speaking: Market traded the whole day with volatile session but finally ending the day up by more than 150 points as buying intensified in the last sessions. Sensex touched intraday high of 18833 and low of 18537. Overall breadth was marginally in favor of Declines, where the Declines stood at 1363, while Advances at 1349. High volumes have been noticed over past week but today it broke all the records. The market churned an astonishing Rs 10545 crores. It shows that there is a huge liquidity inflow from foreign as well as domestically. Sensex is marching up with some huge volumes. Traders can take longs keeping a stoploss of 18300 on Sensex.

The market recouped its lost ground in noon trades and rallied sharply thereafter, after a fall of about 91 points to the day's low of 18,537. The market was quiet in early trades as the second quarter performance of Infosys Technologies disappointed investors. IT stocks, which rallied over the past couple of sessions expecting the technology bellwether to surprise, were beaten down. However, the market trimmed losses as the trading progressed and zigzagged between positive and negative territory in late morning trades before taking a dip on renewed selling. The index shrugged off its bearish trend towards the closing hours and surged to another record high of 18,833 on healthy buying in auto, capital goods, and metal stocks. The Sensex finally ended 156 points higher at 18,814, while the Nifty gained 83 points to close at 5,525.

Among the sectoral indices the PSU index led the upsurge with gains of 3.094% at 8,778 followed by the BSE CG index (up 2.75% at 17,088), the BSE Auto index (up 2.69% at 5,604) and the BSE Metal (up 2.69% at 14,833). The market breadth was neutral. Of the 2,804 stocks traded on the BSE 1,354 stocks advanced, 1,378 stocks declined and 72 stocks ended unchanged.

Out of the 30 Sensex stocks, 23 managed to end in the green while seven stocks ended with losses. M&M registered solid gains and soared 7.62% at Rs814. ONGC jumped 5.66% at Rs1,066, Grasim shot up by 4.14% at Rs3,800, BHEL advanced 3.89% at Rs2,421, ACC moved up by 3.46% at Rs1,260, L&T added 3.40% at Rs3,487 and Hindalco gained 3.26% at Rs176. Among the laggards Satyam Computer dropped 7.50% at Rs448, Infosys shed 6.99% at Rs1,976, TCS declined by 4.72% at Rs1,072, Wipro fell 2.99% at Rs488 and Cipla slipped 1.14% at Rs191, while Dr Reddy's Lab and Bajaj Auto closed with marginal losses.

Strong liquidity lifted the bourses for the third consecutive day today. The market hit fresh all-time high towards the latter part of the trading session. The market had witnessed a bout of volatility in early trade. Capital goods, metal, auto and realty stocks extended gains. Mid-cap and small-cap indices outperformed market. Asian markets held firm. European markets were positive. The market breadth was marginally weak.

Infosys witnessed a setback after it announced Q2 September 2007 results before trading hours today, 11 October 2007. Other IT pivotals tumbled following the post Q2 results setback in Infosys counter. Reliance Industries edged higher in volatile trade.

The BSE 30-share Sensex was ended up 155.82 points, or 0.84%, to 18,814.07, a record closing high. It opened on a positive note. It hit fresh all-time high of 18,832.65 in late trade. It hit intra-day low of 18,536.97 in afternoon trade. At day's low of 18,536.97, Sensex had lost 121.28 points for the day.

The broader based S&P CNX Nifty ended up 83.4 points, or 1.53%, to 5,524.85, a record closing high. Nifty hit a fresh all-time high of 5,532.75 in late trade.

Of the 30 shares of the Sensex, 23 had moved up, while the remaining were trading down. The market breadth was almost even on BSE: 1,323 scrips advanced, 1,378 declined, while 394 remained unchanged.

The Bank of Japan (BoJ) today, 11 October 2007, kept interest rates unchanged at 0.5% as widely expected. Bank of Japan Governor Toshihiko Fukui said in a news conference that price pressures are growing and that there is no change in the central bank's stance on gradually adjusting interest rates in line with economic conditions.

India’s largest private company in terms of market capitalization and oil refiner Reliance Industries (RIL) rose 0.47% at Rs 2,629.65. The stock came off session's low of Rs 2,585.25. Earlier, the stock had pared gains from session's high of Rs 2,656. Reliance Industries and Indian Oil Corporation may jointly explore an oil area in East Timor, reports suggest. RIL said after trading hours yesterday, 10 October 2007, it will unveil Q2 September 2007 results on 18 October 2007.

Mahindra & Mahindra rose 7.62% to Rs 813.35 and was the top gainer from the Sensex pack. Mahindra & Mahindra's wholly owned subsidiary Mahindra Intertrade is all set to step into front end retail, reports suggest.

IT pivotals were major losers from Sensex pack after Infosys announced its results just before trading hours today, 11 October 2007. India's No. 2 software services exporter Infosys Technologies declined 6.99% to Rs 1,976. It clocked high volume of 24.27 lakh shares on BSE.

Infosys revised upwards earnings and revenue guidance for FY 2008 (year ending 31 March 2008). The company has forecast a between 17.5% to 18.1% growth in EPS in FY 2008 as per Indian GAAP to between Rs 78.60 to Rs 78.99. It has forecast a between 19.4% to 19.8% growth in revenue as per Indian GAAP to between Rs 16588 crore to Rs 16648 crore.

As per US GAAP, the company has forecast a between 32.4% to 33.1% growth in consolidated earning per American depository share to between $1.96 to $1.97. The company has forecast a between 34.5% to 35% growth in revenue as per US GAAP to between $4.16 billion to $4.17 billion.

Infosys’ consolidated net profit as per Indian GAAP rose 1.94% to Rs 1100 crore in Q2 September 2007 over Q1 June 2007. Consolidated revenue rose 8.8% to Rs 4106 crore from Rs 3773 crore in Q1 June 2007.

The BSE 30-share Sensex rose 378.01 points, or 2.07%, to 18,658.25, a record closing high on Wednesday, 10 October 2007. Sensex had earlier completed its 17,000 to 18,000 journey in just 8 trading sessions, the second fastest 1,000-point rally ever. The market had hit 17,000 mark on 26 September 2007.

Heavy FII buying and hopes of a further cut in interest rates by the US Federal Reserve at its next policy meeting on 30-31 October 2007 have boosted the bourses in the past few days.

Waiting is a trap. There will always be reasons to wait. The truth is, there are only two things in life, reasons and results, and reasons simply don't count.

We’ve had enough of reasons for gains and pains over the last couple of months. The day of reckoning has come corporates in general and Infosys and the IT sector in particular. Infosys results are slightly lower than India Infoline’s expectations. The political storm has blown over, for the time being at least. We expect a negative opening on the back of poor numbers from Infosys and expectations of similar earnings reports from other software biggies.

Software stocks fell out of favour with investors after the rupee started accelerating versus the dollar. The inevitable happened, and most IT firms, barring TCS to an extent, announced poor Q1 results and weak outlook. So, not much is expected this quarter either, though Q2 may be somewhat better than Q1. Sequential (QoQ) growth is not expected to be too exciting.

What remains to be seen is whether IT companies announce any improvement in the guidance for the whole year. But, with the rupee rise continuing unabated one may be asking too much from software firms. The hope will be when companies like Infosys would be able to increase their rates in January when most deals are renegotiated.

IT stocks have been laggards this year in contrast to the sharp rally witnessed in the old economy pack and the market as a whole. Having said that there has been some rally in these shares over the past few days. Any further bad news could lead to a fall. Even otherwise, these stocks may be ripe for a correction along with the market.

Coming to the broader market, there is no major change in the sentiment. The dollar deluge continues into the booming stock market. The political storm has blown over, for the time being at least. We expect a positive opening on the back of a firm trend across Asia. The movement later in the day will hinge on Infosys results and the management talk though there is no major threat to the overall momentum.

DLF's Board of Directors will meet today to consider fund raising plans, global acquisitions, participation into the proposed IPO of DLF Offices Trust in Singapore and investment in various development projects in India and abroad.

The Dow Jones Industrial Average slipped on Wednesday, a day after hitting an all-time high. But, the Nasdaq Composite index managed to buck the trend, ending at its highest level in more than six years.

Alcoa declined the most in a week after sales slipped 3.2%. Monsanto fell after its loss widened on lower-than-expected sales. Boeing posted its steepest drop since August after saying it needs six more months to finish building its new 787 Dreamliners.

The Standard & Poor's 500 Index lost 3 points, or 0.2%, to 1,562.47 after climbing to a record yesterday. The Dow fell 86 points, or 0.6%, to 14,078.69. The Nasdaq added 8 points, or 0.3%, to 2,811.61.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by a narrow margin on volume of 1.16 billion shares. On the Nasdaq, decliners beat advancers 8 to 7 on volume of 1.96 billion shares.

In economic news, a government report showed that August wholesale inventories rose a smaller-than-expected 0.1% after rising 0.2% in July.

Treasury prices fell, raising the yield on the benchmark 10-year note to 4.65% from 4.64% late on Tuesday. COMEX gold for December delivery rose $2.90 to settle at $746 an ounce.

US light crude oil for November delivery rose $1.04 to settle at $81.30 a barrel on the New York Mercantile Exchange.

European shares closed higher as strength in the mining sector offset some weakness from oil and gas companies. The pan-European Dow Jones Stoxx 600 index gained 0.1% at 388.23. The UK's FTSE 100 closed up 0.2% at 6,633.00 and the German DAX 30 rose 0.1% to 7,986.57. The French CAC-40 dipped 0.4% to 5,838.49.

In the emerging markets, the Bovespa in Brazil was down 0.6% at 63,197 while the IPC index in Mexico gained 1% at 32,129. The RTS index in Russia added 0.1% at 2143 and the ISE National-30 index in Turkey fell 0.9% to 73,206.

Asian markets rose this morning, led by raw-materials producers and shipping companies, on speculation that global demand for commodities will be able to weather a slowdown in the US economy.

The Nikkei in Tokyo advanced 35 points to 17,212 while the Hang Seng in Hong Kong climbed 270 points to 28,839. The Kospi in Seoul added 3 points to 2044 and the Straits Times in Singapore gained 60 points at 3874.

The Morgan Stanley Capital International Asia Pacific Index rose 0.1% to 167.98 as of 10:49 a.m. in Tokyo, after a two-day, 1.3% rally that lifted the index to a record. Indices of shipping lines and miners were the biggest contributors to the measure's advance today.

The Philippines was the only market to decline in the region.

Another mile stone was achieved as yet again Indian bourses recorded a new all time high close. After hitting the 18,700 mark key indices faced stiff resistance as selling pressure in the FMCG and select Consumer Durable stocks dragged the benchmark index below the 18,700 mark.

SBI surged by over 2% to Rs1923 after reports stated that the company would likely get approval for right issue. The scrip touched an intra-day high of Rs1957 and a low of Rs1860 and recorded volumes of over 9,00,000 shares on NSE.

Tata Motors gained by 1.3% to Rs806 after reports stated that the company is firming up plans to launch new cars in 2007-08 and is likely to unveil a new multi-utility vehicle during 2007 and the company has also announced hike in commercial vehicle prices. The scrip touched an intra-day high of Rs818 and a low of Rs773 and recorded volumes of over 11,00,000 shares on NSE.

Lupin gained by 0.5% to Rs588 after the company announced that it acquired Japan based Co. Kyowa for $60mn. The scrip touched an intra-day high of Rs605 and a low of Rs580 and recorded volumes of over 4,00,000 shares on NSE.

Sun Pharma edged lower by 0.5% to Rs920. The company announced that they have secured US FDA approval to market Trileptal tablets. The scrip touched an intra-day high of Rs941 and a low of Rs918 and recorded volumes of over 2,00,000 shares on NSE.

Metal stocks were among the major gainers. Jindal Steel rallied by over 10% to Rs7414, Hindalco advanced by 3. 7% to Rs170, SAIL was up by 3% to Rs212 and Sterlite Industries added 2% to Rs833.

Sugar stocks were in momentum after the government announced that they would subsidies loans to the sugar mills and make blending of 5% ethanol mandatory. Renuka Sugar jumped over 11% to Rs814, Bajaj Hindusthan surged by over 8% to Rs170 and Balrampur Chini advanced over 5% to Rs75.

Capital Good stocks were the star performers. The index was up by over 4%. BHEL, surged over 4% to Rs2326, L&T rose over 6.5% to Rs3372, ABB gained 1.3% to Rs1397 and Punj Lloyd has added 6.5% to Rs337.

Stocks in News:

ICICI and SBI cut interest rates on new home and retail loans by 50-100 basis points.

RIL set to receive formal approval from the government for its KG basin gas pricing formula.

IOC is in talks with RIL for exploration of latter’s oil block in East Timor.

M&M group has announced its foray into retail market with a chain of premium lifestyle stores.

Tata Steel plans to build its own jetty at Haldia river front for an investment of Rs1bn.

Infosys has reported a consolidated net profit of Rs11bn in the second quarter versus Rs10.79bn in the quarter ended June, translating into a sequential growth of 2%. Consolidated net sales have risen by 8.8% QoQ at Rs41.06bn versus Rs37.73bn in the quarter ended June.

The results are no great shakes, and the market is unlikely to take kindly to the numbers. The stock along with other IT shares are expected to fall on the disappointing results from Infosys.

Infosys Board of Directors at its meeting held today has declared an interim dividend of Rs6 on each equity share (120% on a par value of Rs5 per share).

Technology sector remains the sole gainer for the day with support from Apple, Google and RIMM

It was a good day for Technology stocks today, 8 October, 2007 with Google crossing the $600 mark for the first time and closing at a record high. Weakness in crude oil and gold prices with the dollar strengthening partly against euro led US stocks take a hint and slip lower. Market closed mixed with only Nasdaq gaining. Nine out of ten economic sectors posted losses today. Technology remained the sole winner.

Crude-oil futures for light sweet crude for November delivery closed at $79.02/barrel (lower by $2.2/barrel or 2.71%) on the New York Mercantile Exchange. The contract touched $78.35 during the session, the lowest intraday price since mid September. The dollar index rose 0.6% today against euro.

Volume on the New York Stock Exchange topped 851 million shares, with declining issues outpacing advancers more than 2 to 1. On the Nasdaq, nearly 1.5 billion shares exchanged hands and decliners topped advancers 4 to 3.

For tomorrow, investors will have minutes from the FOMC's 18 September meeting. Other than that, Alcoa will release its latest quarterly results after the market's close.

Nifty — The index opened on a positive note yesterday and rallied through the day, closing with a gain of 114 points.

Breakout from trading range — The index, after seeing a breakout from a 5,000- 5,261 trading range, is showing strength and is trading above the upper end of a 5,000-5,261 band. Breakout from the trading range could take the index higher to around 5,520.

Support — The index has support at around 5,384 (high of 9 Oct 07). Break below 5,384 could result in the index showing intra-day declines. Lower support is at around 5,261 (the upper end of the trading band).

Conclusion — Upswing can continue with intra-day support at around 5,384.